What Do Lenders Look at When Approving A Home Loan?

To get a clearer view of the mortgage process, it’s helpful to know some of the factors that will be considered when your mortgage application is reviewed.

When you apply for a mortgage, loanshub.com.au will forward your application and the supporting documentation to the selected lender after checking your ability to service the loan based on the evidence provided. It's the lenders responsibility to review your loan scenario and the supporting documentation to confirm that it meets their loan policy guidelines and to determine whether or not you formally qualify for the loan.

The lender looks at your information with these basic criteria in mind:

• Your ability to repay the loan. This requirement basically asks, “Is your income enough to cover the new mortgage payment and all your other monthly expenses?” To figure this out, lenders use your debt-to-income ratio. Most lenders want your debt-to-income ratio to be under 40%, but the ratio that works best for you is the one that you can comfortably afford.

• Your likelihood to repay the loan. Your payment history and credit history are indicators to lenders of your likelihood to make payments in the future.

• The property values. The lender carefully looks at the value of the home you’re purchasing or refinancing (based on a professional valuer ordered by your lender) to verify that it meets the purchase price. This will also help them understand whether the loan-to-value ratio (LVR) fits within the loan policy guidelines.

• The source and amount of funds for your deposit payment. If you have a deposit payment of less than 20%, you will typically be required to pay lenders mortgage insurance (LMI), which increases your monthly mortgage payment. The lender will review your documentation to estimate whether you have enough money to cover other associated costs.

As you move forward, keep in mind that your income, debt, credit history, deposit, savings, home value and loan policy guidelines will all play a role in whether your loan application is approved.